Most accounts need one, not two signatures

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Dear Debt Adviser,
If there are two individuals named on a mortgage with a home equity line of credit, or HELOC, and there is a draw on the HELOC, do both individuals need to sign for the amount drawn? (For example,) husband writes a check for $24,000 against the line of credit and the other individual is not aware.
— Teresa

Dear Teresa,
Does this hypothetical husband have a hypothetical wife? Is she named Teresa? And why do I feel as if I have stepped into a hornet’s nest? Seriously though, if the HELOC is in both names, it generally works much the same as a joint-checking account. Either person named on the account has access to the funds and can make withdrawals. The exception to this would be if the account is set up where both signatures are required to draw on the account.

This is not typical, however, and requires a bit of forethought and a stronger will than mine to buck convention. I recall when my sainted wife and I bought our first car together. They asked how the title should be listed — Mr. and Mrs. or Mr. or Mrs. I chirped “and,” for which I got a withering glare from the registry employee and my wife. Oh, my mistake, I quickly said, I meant “or,” as in one signature was all that was needed.

The only way to know for sure how your loan agreement is structured is to review the loan documents. I suspect that if the unfortunate husband referenced in your example has written a check that was paid by the account then the loan is structured so that either Mr. or Mrs. may draw from the account with only one signature.

The elephant hanging around the edges of this column is a $24,000 draft on a joint account where the other account holder was not informed, asked about or given input, and has yet to receive a $24,000 gift from said action.

When any two or more people, spouses, friends, business partners or any other combination enter into a financial relationship where funds can be accessed with or without the other party’s consent, there is an opportunity for problems.

Obviously, there is a certain degree of trust in place or the financial arrangement would never have been made. Communication, or lack thereof, is where things can begin to break down and cause the potential for serious trouble. To help you and any of my readers who are beginning, or are already in, a financial relationship with another person or persons, follow the guidelines below:

  • Begin by discussing goals. These will be quite different between business partners than they will be for spouses, but the conversation is important for all. Topics to cover include why you should save, and when and why you should spend.
  • Decide if you want the account to be drawn by joint signature or single signature. With a joint-signature account, both parties must sign for withdrawals from the account. While this could be a burden at times, it does eliminate any surprise withdrawals by one party or the other.
  • Discuss how withdrawing discretionary funds from the account will be handled. For example, many people agree that anything above a certain mutually agreed-upon amount will be discussed beforehand by both parties.

Determine if one or the other or both of you will handle any maintenance issues for the account, such as balancing the checkbook, writing routine checks, making loan payments etc. Yes, someone should balance the checkbook!

Good luck!